Is Value Investing The Same As Market Timing?
Warren Buffett has been touted as the world’s foremost ‘Buy and Hold’ Investor. He’s been quoted as saying he likes to hold stocks “forever”.
He’s also a value investor. So most people could draw the conclusion that value investing means buying for the long term. I disagree strongly. Buying when something is undervalued and selling when its overvalued is essentially market timing. You time your entry and exit points based on the fundamental underlying value of the asset. So Buffett really is a market timer!
Warren Buffett recently sold his Laguna Hills house because “it was overvalued”. Its not like he needed any extra money or couldn’t make his mortgage payments!!!
I feel sorry for all those people who are still buying real estate in Southern California because “its a lifestyle choice and people always want to live here”, or “in the long run, it will always go up”, or “its currently a buyers market so now is the time to buy” or some stupid excuse that ignores the underlying value of the property.
When a property rents out for $1450/mo and your mortgage is $2300 on an interst-only loan 3 year ARM, its way overpriced!!! Which is why I sold my condo and pocketed the cash!
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June 29th, 2006 at 12:06 pm
Wow very interesting.. Where do you get this info about Warren Buffett?
June 29th, 2006 at 12:39 pm
http://en.wikipedia.org/wiki/Warren_Buffett
I also strongly recommend “Buffett: The making of an american capitalist”
by Roger Lowenstein.
July 7th, 2006 at 12:54 pm
Great post. I wrote a similar, though maybe less pithy viewpoint at my blog a few days ago.
Not only does Buffett buy when the price is right, he used to sell when the price is write, too (like your story with your home). He has since stopped but this is mainly due to the fact that he has “more money than ideas”, liquidating his positions would be difficult (maybe impossible in his case, since the market would take that as a sign to bail out) and because he uses his “permanent holding period” as a selling point for why owners should sell to him. He is able to offer their business a home and that is often worth something to owner/managers of businesses. It guarantees that their business won’t be broken up and sold off piecemeal. Of course, they won’t get top dollar, either, but that is the tradeoff they make.
For Buffett, I recommend reading his annual letters to shareholders which is available at http://www.berkshirehathaway.com, and also “The Warren Buffet Way” and the Warren Buffett Portfolio”.